American Electric CEO Sees Cheap Gas and Volatile Coal

American Electric Power Co. (AEP), the largest U.S. consumer of coal, expects stable natural gas prices and continued swings in the cost of coal as plants are shut to meet tighter pollution standards.

“I don’t see a big major shift in the price of gas in the next decade,” Chief Executive Officer Nick Akins said today in an interview at Bloomberg headquarters in New York. “They continue to find more natural gas all the time.”

American Electric, which supplies more than 5 million customers in 11 states, sees coal accounting for less than 50 percent of its generation capacity in 2016, down from 60 percent this year, as dependence on gas increases. The Columbus, Ohio-based company plans to close coal plants capable of producing 7,150 megawatts by 2015, part of an estimated 60,000 to 70,000 megawatts being shut industry wide to meet tighter U.S. air pollution standards.

Driven by a glut in supply from shale formations, gas futures prices on the New York Mercantile Exchange reached a 10-year low of $1.927 per million British thermal units last year. Gas is averaging $3.681 per mmBtu this year. Akins said that even with gas prices at $7, the more efficient burn rate compared with coal would make it the cheaper option.

Central Appalachian coal futures, the U.S. benchmark, have ranged from $43.75 a ton to $81.77 a ton during the past five years. The price has averaged $59.34 this year as producers announced mine closings that will cut output by millions of tons. Proposed U.S. Environmental Protection Agency rules restricting power plant carbon dioxide emissions mean no coal-fired units will be added, he said.

“It’s going to go up and down,” Akins said of the price of coal. “You’re retiring generation around the country and you’re retiring coal mining capacity.”

American Electric’s coal consumption has fallen to about 55 million tons a year from a peak of 80 million in 2007, Akins said. “Our future resources will be natural gas,” Akins said.

To contact the reporter on this story: Jim Polson in New York at jpolson@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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